Cost of external financing of SMEs: A study of a developing country

Abstract

This study has attempted to calculate the actual cost of the fund of SMEs by considering the fund from institutional and non-institutional sources. For this study, some financial tools, techniques, two samples mean comparison test and ANOVA test have been used to analyze the cross-sectional primary data. The study has found that the average actual cost of the fund from institutional sources, non-institutional sources (without trade credit) and trade credit are 15.52%, 32.11% and 40%, respectively. The cost of the external financing of small enterprises is higher than the medium enterprises and this cost in manufacturing sectors is higher than the service/trade sectors. Again, this cost in rural region is higher than the urban region but it is not statistically significant. The average cost of external financing of SMEs is about 29% which is really high to conduct a business properly.